A proposed financial transaction tax that would cover 10 European Union nations and potentially provide a major windfall of development funding has passed a major hurdle, as finance ministers offered national opt-outs for levies on pensions to address concerns voiced by Belgium, Slovenia, and Slovakia.
International development advocates have been closely following the FTT negotiations, which include heavyweights Germany and France, because parallel proposals would formally or informally earmark some of the projected 15 billion-plus euros in new revenues for international aid.
"We are confident that this work can be wrapped up at the technical level,” said Vanessa Mock, European Commission spokesperson for Taxation and Customs Union.
Talks have progressed despite “big pressure from the financial lobby,” said Alexandre Naulot, advocacy and policy advisor for financial sector and regulation at Oxfam France.
Officials from the three countries were given until the next regular meeting of EU finance ministers in May to consult their governments and accept a clause that would allow them to refrain from taxing pension-related transactions, while keeping that option open for other signatories. A thumbs-up from at least two of them is crucial under the rules of a seldom-used EU tool called “enhanced cooperation” that allows any group of at least nine member countries to make side deals to coordinate policies.
Enhanced cooperation has only been used twice before, for accords on divorce and patents, according to David Hillman, director of U.K. NGO Stamp Out Poverty, which is part of the Robin Hood Tax Campaign, a coalition of over 100 British groups that favor taxing financial institutions to help fund efforts to address poverty and climate change. In those cases, the negotiations lingered for four to six years. On that measure, the FTT talks, dating to 2013, appear to be on schedule.
With elections looming this year in France and Germany, the process seems infused with a growing sense of urgency. “We need an agreement this year, by summer, before the German elections in October,” said Naulot.
Serious debate about an FTT on an international scale began in the aftermath of the 2008 financial crisis, with a report commissioned by the G20 and produced by the International Monetary Fund. Then French President Nicolas Sarkozy became a champion. A group of 1,000 economists, including people like Jeffrey Sachs, expressed support, and the issue received extensive press coverage.
Europeans blamed the United States for foot-dragging at the global level, and in 2011 France and Germany spearheaded an EU-wide proposal. The EU cannot levy taxes, but it does have the authority to “harmonize” policies among member states.
Based on experiences from about 40 countries, France resolved that it had nothing to lose in terms of competitiveness and passed its own legislation in 2012. Half of the revenues from the French tax were allocated to official development assistance and climate change. As part of the 2017 budget law passed in December, the country increased the share tax to 0.3 percent from 0.2 and extended it to cover intraday trading, beginning in 2018.
Meanwhile, facing an uphill battle with some of the 28 EU members, proponents took the enhanced cooperation route at the European level.
In addition to the countries mentioned above, participants include Austria, Spain, Greece, Italy, and Portugal. While a numerical minority, the participants represent about two-thirds of the EU’s combined GDP.
The additional revenues have been estimated at 15-20 billion euros per year in an initial phase as the tax is gradually implemented, according to Hillman. That could jump to as much as 22-30 billion euros, depending on the size and scope of the levies.
Negotiators have yet to stipulate exact figures. That’s the last “important hurdle,” Hillman said, “setting the tax rates for different asset classes.” Then the agreement would go to the respective national legislatures for ratification, he added.
The new revenues would be collected by national exchequers, not by the EU, and countries would have no outside restrictions on their use. “Member states would be free to use the revenues in whatever way they deemed necessary," said Mock.
International development advocates have been lobbying national officials to pledge to follow France’s lead to allocate at least part of the windfall to ODA. In a joint declaration following a December 2014 bilateral summit, Spain and France agreed to “work together on the issue of allocating the revenue from the Financial Transaction Tax (FTT), part of which should be used for financing development and in the fight against global warming.”
NGO observers expect at least some other countries to follow suit. “Smaller countries such as Greece and Slovakia are not likely to spend the money beyond their borders,” said Hillman. “But the bigger countries could. France already has.”
Germany presents a special case, since domestic law prohibits direct links between revenue sources and outlays. Development advocates are attempting to forge a “gentlemen’s agreement” that would commit the government to funnel part of the FTT revenues into new international aid, said Peter Wahl, board member of German think tank World Economy, Ecology and Development.
Read more international development news online, and subscribe to The Development Newswire to receive the latest from the world’s leading donors and decision-makers — emailed to you free every business day.
